Loan board approves suspension of health care benefits for city of Pontiac retirees

Jul. 15, 2013

Written by

Detroit Free Press Lansing Bureau

LANSING — The city of Pontiac will suspend retiree health care for up to two years but increase monthly pension payments by $400 a month under a plan approved today by Michiganís Emergency Loan Board.

Pontiac is under a state-appointed emergency manager, Lou Schimmel, who had raised the prospect of bankruptcy if the plan was not approved.

The city has funded retiree health care from its general fund but faces a $6 million deficit if it continues to do so.

State Budget Director John Nixon, a member of the loan board, said Schimmelís plan to suspend the health care benefit while increasing monthly payments should protect most of the cityís roughly 1,000 pensioners and result in a financial benefit for some.

ďI donít really see any other option at this point without throwing the city into a major financial meltdown,Ē Nixon said.

Although the city of Pontiac is in severe financial distress, officials agreed its city pension fund is well funded. Pontiac City Council President Pro Tem Patrice Waterman, who represents the city council on the pension board, said it is 149% funded.

Waterman and other members of the Pontiac City Council appeared at the meeting to argue for an alternative plan that would allow surplus pension funds to pay for the retiree health care. But that plan would require IRS approval and loan board members said approval almost certainly couldnít be secured before the start of the next fiscal year on Sept. 1. Concerns were also expressed about the viability of such a plan, given that the pension fund hasnít always had such surplus funds in recent years.

Waterman received a partial concession when the loan board and Schimmel said they would be prepared to consider a viable alternative inside of two years if conditions change.

ďI guess Iíll have to live with it for right now,Ē Waterman said after the meeting.

Pensioners will have to pay taxes on the extra $400 in monthly pension income.

Pontiac resident Linda Hassen said sheís not sure whether Schimmelís plan or the city councilís is better, but her main concern is more costs getting put on the tax rolls.

ďWe have so much going on that one more thing on the tax rolls would be very devastating at this time,Ē Hassen said.